UHAL AMERCO An Undervalued $7Billion Company Hidden in Plain Sight Long Investment Idea Price Target: $502/share Alexandra Esparza MBA Candidate at the Yale School of Management, May 4, 2016
Company Background Staying Power: Founded by Schoen family in 1945 Largest DIY mover in the US, with ~ 50% market share; one of the largest storage players nationally as well High brand recognition; name synonymous with moving Focused on improving core DIY business and track record of execution
Business Segments Moving and Storage: comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U- Haul and Real Estate Property and Casualty Insurance/ Repwest Life Insurance, comprised of Oxford and its subsidiaries
Key Metrics Market Cap: $6.90B P/E ~14x on Consensus Fiscal Year 16 Generated $22.74 in the 12 months ending 12/31/2015, trailing PE of 15.61 LTM EV/EBITDA of 0.24 Thinly traded (average 3 month volume is 60k shares per day) *Fiscal year ends 3/31/16, FY 15 denotes full year ending on 12/31/15 Based on Closing Values as of 5/02/2016
Value Creation, but Under the Radar Virtually uncovered by the Street only one sell-side analyst covers Orphaned company, doesn t fall into a distinct coverage bucket Thin volumes and limited institutional interest Market sees a company in the unattractive Moving Industry in reality it is a differentiated DIY company with other optionality attracting a different customer 3 year CAGR of 7% Earnings in 9 months ended 12/31/15 up 25.6% y/y Margin Expansion since 2010 and ongoing: EBITDA Margin +33% in 2015, +36% in LTM; Profit margin ~14% in LTM Founding family has ~50% stake, speaks to skin in the game, have been able to execute Relatively clean balance sheet, and a special dividend every year since 2011
The Best at What They Do - The most storage coverage in NA, 50% market share in otherwise fragmented DIY moving space - Competitive moat from largest network, bestof-breed product, entrenched brand awareness and goodwill. - Ryder and Penske now focused on B2B space not B2B, U-Haul continues to dominate - High barriers to entry given real estate portfolio and largest fleet of trucks of any mover - Not just another moving company : owns the DIY ecosystem, lots of profitable add-ons Source:AMERCO - Innovating on secular trends in the moving industry (i.e. Pick-up U-Boxes)
Millennial Engagement Drives Growth Millennials are now the largest US demographic segment, with ~75mm, and a median age of 25 Millennials increasingly moving in cities; evidence that they delayed marriage but may follow Gen Z to suburbs, potential great market for DIY movers that is underappreciated. Set to capture any uptick in family formation or moving in this demographic as there is pessimism around this group. High affinity for DIY, and can be expected to prefer U-Haul s lower prices relative to full service movers Evidence suggests this generation is more willing to take on DIY projects vs. previous generations DIY makes sense for anyone with fewer positions, smaller apartments, no need for a full service mover U-Haul especially practical for short-distance moves in in urban environments, where millennials tend to live. Way for the consumer to save money, but brand isn t just a low-end solution Ongoing negative customer perception of big moving companies/brokers/carriers, strong brand is reassuring to this demographic first in Google search for moving truck
#UHAULFAMOUS: >7,200 Posts
U-Haul Positioned to Take Advantage of Demographic Shifts Building out tech presence: app UX is strong and easy to use Implemented marketplace for moving helpers, with room for tech integration Can continue to consolidate fragmented DIY space which is appropriate for this large demographic Seamless moving experience (cited as one of the most stressful life experiences) Storage units delivered to customer s door Scheduling via app All supplies and add-ons available at U-Haul point of sale Limited opportunity for Uberization of this need in sharing economy: I don t have a truck, a hitch and a storage box lying around and neither do any of my friends, company working on having a best of breed consumer interface, fleet utilization tech pretty commoditized Engaging millennial users with Instagram truck graphics campaign; improves the user experience and promotes brand awareness in a very effective and clever way
UI is Easy to Use and Differentiating
High Brand Awareness is Extremely Valuable Convenience: Consumers are generally ignorant about the moving industry, too many options, lots of scams, unwilling to do research Preference for known, safe brand Moving is a huge pain-point, and the most seamless experience wins Point of Sale supply purchases; one-stop experience Pricing: Packing supplies are cheaper vs. competitors, and experience significantly cheaper vs. fullservice movers Still, U-Haul can afford a high markup on supplies Real Competitive Differentiation: Penske and Ryder mostly focuses on business rentals; U-Haul is the only large player in the DIY space. Storage centers also act as rental centers/creates an integrated solution, only full supply chain solution for the consumer
Other Businesses Oxford Life Insurance caters to aging boomer demographic AMERCO Real Estate Company manages the storage units Repwest - Property and Casualty Insurance serves moving consumers Strong cross-selling platform at point-of-sale
Revenue Growth By Segment 2012 2013 2014 2015 Self Moving Equipment Rentals 8.48% 5.32% 10.63% 9.77% Self- Storage Revenues 11.33% 13.61% 19.08% 16.14% Self- Moving and Self- Storage Products 4.03% 3.40% 5.91% 4.27% Property Management Fees 5.12% 4.78% 0.47% 3.46% Life Insurance 34.09% - 35.83% - 11.34% - 1.15% Property and Casualty Insurance 6.28% 5.24% 19.54% 13.16% Investment and Interest Income 17.22% 12.71% - 4.00% 6.45% Other Revenue 41.49% 24.22% 64.83% - 0.37% Totals 11.58% 1.85% 10.81% 8.44%
Valuation and Upside Limited direct comps, but industry analysis suggests opportunity for multiple expansion by 4+ turns Rental providers such as MINI trading at ~21x FY16 estimates Storage peers such as CUBE trading at 23.34x EV/EBITDA estimates Current discount valuation: 14x FY16 street P/E estimates 12x FY17* estimates of $29.55/share 17x on FY17 yields price target of $502/share, plus potential for other corporate actions *Ending 3/15/17
Catalysts Additional Wall Street coverage, re-rating, greater visibility of the company Potential opportunity to spin-off real estate assets or insurance businesses Spin-real estate into REIT, but maintain operating benefits (potentially analogous to recent DRI/FCPT spin) Uptick in dynamism and increased moving activity in the US and Canada
Risks Slowdown in moving or homebuilding generally Americans overall may be moving for jobs less, and Millennials may not ultimately move out of cities as they form households Disruptive tech-driven innovation in the logistics space by competitors High concentration of family ownership and thin volume